Airline News and Commentary

American Airlines Contest Backfires

Crazy story from a guy who won the Why We Fly contest from American Airlines. He learns that the 24 coach flights he’s won are valued at $2,200 each for tax purposes—meaning that he ends up paying about $1,000 per flight. Nice prize, he says…

This guy should spend a little money and consult a tax advisor. The IRS only charges you tax on the “fair market value” of prizes. $2200 per ticket is not the FMV — even AA has admitted that by disclosing that their valuation is the “worst case scenario.” This happens a lot with contest winners (e.g. the toaster won on the Price is Right is really not worth $299). There is a tax form that he can submit with documentation proving that his flights did not cost $2200. Alternatively, if he is really concerned, he should have AA place a $400 retail value limit on the tickets. He can go pretty much anywhere in the US for $400, and it will make a clear case to the feds that the tickets cannot be taxed at more than that.

It would be shame if he gave up these tickets without seeking professional tax advice.